At an innovation conference in Mexico in November of 2006, the Colombian journalist Alejandro Santos reminded us, in his eloquent summary, of the advice that the great Leo Tolstoy gave to prospective writers: "Describe your village, and you will be universal." Santos illustrated Tolstoy's maxim with the Colombian writer Gabriel Garcia Marquez, winner of the 1982 Nobel Prize in Literature, whose world-renowned novel One Hundred Years of Solitude takes place in Arataca, the small river village of his childhood.
In other words, to come up with a successful innovation, capable of being appreciated by people around the world, you need something very compelling to offer those global markets. And where do you find such innovative, compelling ideas? Sometimes the answer is in world-class research labs. But often, the best new ideas are found in those areas that you know best - right around you.
Global aspirations need to be grounded in local actions.
Given the importance of new technologies in driving innovation, it is not surprising that over the last forty years we have seen the rise to prominence of Silicon Valley, Boston and a few other technology-based innovation hubs built around the great engineering universities in their midst - Stanford and UC Berkeley, and MIT, respectively. After all, there is, arguably, nothing more universal than science and technology. We have also seen cities and regions around the world aiming to become "the next Silicon Valley" by attempting to emulate whatever has worked so well in the original Silicon Valley.
Most such efforts have fallen short of their goals. I think that they fail because while it is easy to focus on the global, universal aspects of the successful innovation hubs - great technologists, entrepreneurs and venture capitalists - they miss the very local, human elements that make it all work. Over the decades, Silicon Valley and the Boston area have developed business relationships, social connections and local institutions that are critical to their success, and that are very difficult simply to copy and import. These human connections are organic in nature, and have to be developed over time in each community, based on its individual flavor and style.
These subjects came up several times during a recent visit to Spain. The main purpose for the trip was to participate in a forum in Barcelona on the impact of globalization on business strategy, co-sponsored by IBM and the IESE Business School. IESE is a highly ranked, internationally oriented business school that offers a variety of MBA, PhD and executive education management programs. The forum brought together a small number of corporate thought leaders, who along with IESE faculty members and IBM executives, discussed the opportunities, challenges and risks associated with globalization.
The IESE host for the event was Pankaj Ghemawat, who is a professor in the Harvard Business School, in addition to being a member of the IESE faculty. Pankaj is a renowned expert in globalization and strategy. He has just published a new book on the subject, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter.
Technologies, chiefly the Internet, have made it possible to bring together geographically remote people, information and business processes. The Internet is indeed enabling the world to become increasingly integrated or flat. It has made it possible for India, China and several other countries to become part of the global supply chain for services and manufacturing, helping to create a growing middle class in those countries and giving them a huge stake in the success of globalization.
But, in his opening remarks at the forum, Pankaj asked us to reflect on the realities of globalization. How global are we really? Does that mean - as someone said more than 150 years ago, - that since technology now enables you to break down nationalities and bring people around the world into close connection, that the world is now one, and that capital, like water, will tend to find a common level?
He then proceeded to share a few facts with us. If you look at the fraction of telephone calls and university students that are international as opposed to local, or the portion of a country's population consisting of immigrants versus native-born, the number is well below 5%. The percentage for international capital is higher, as you would expect - it is easier to move money than people around. But even there, the fraction of international direct and stock investments is a bit over 10%. Trade is significantly higher - roughly around 25 - 30%. And those numbers have not changed by large amounts over the years.
Globalization is indeed taking place, but we live in a state of semiglobalization, as Pankaj calls it, which lies somewhere between complete localization and complete globalization. It is interesting to note that for almost all human and financial activities, the state of semiglobalization hovers around 10% or so - that is, 90% of the activities are local and 10% are global. This is very important. As Pankaj asks in Redefining Global Strategy:
"Why do so many global strategies fail—despite companies’ powerful brands and other border-crossing advantages? Seduced by market size, the illusion of a borderless, ‘flat’ world, and the allure of similarities, firms launch one-size-fits-all strategies. But cross-border differences are larger than we often assume. Most economic activity—including direct investment, tourism, and communication—happens locally, not internationally. In this semiglobalized world, one-size-fits-all strategies don’t stand a chance. Companies must instead reckon with cross-border differences."
In addition to attending the globalization forum, I participated in a number of other meetings in Madrid and Barcelona, mostly focused on innovation.
There are quite a number of innovation efforts going on around Spain, and I was glad to hear that rather than any region trying to become the next Silicon Something, they are trying to discover their own individual strengths and build on them - the innovation equivalent of "describe your village and you will be universal."
Let me offer a couple of examples. I visited Cotec in Madrid - ". . . a foundation rooted in the business world with the mission of contributing to the development of the nation by fostering technological innovation in companies and the Spanish society at large." Cotec was founded in 1990 by a group of Spanish entrepreneurs at the suggestion of the King of Spain, Juan Carlos, who serves as its Honorary President and is quite involved in its activities. The King's very visible support of Cotec and its mission is a great help in promoting a culture of technology-based innovation in Spain.
One of the best examples of innovation in the country is Zara, which was founded and has its headquarters in Galicia, a region in the northwest of Spain. Zara is one of the most successful retailers in the fashion industry, with more than one thousand stores in 68 countries around the world. Its success is a result of its highly innovative business model and the supply chain and logistics built to support it, which have revolutionized the fashion industry.
Zara has a very dynamic business model. No design stays in the stores more than four weeks. Customers are encouraged to visit the store frequently to look at the constantly arriving new designs. There is little need for the kinds of major markdowns that other stores are forced to implement. How do they do it?
On average, it takes nine months to develop a new fashion product and get it into stores. Zara is able to shrink that number to a remarkable four to five weeks. Consequently, it can assess in real time how well its products are doing in its stores around the world and take action accordingly. If after a week a product is not selling well, it is withdrawn from the stores and the orders are cancelled. On the other hand, if a product proves hot, production is ramped up, and variations on its design are quickly pursued.
To support its constantly changing fashion lineup, Zara had to develop a local supply chain for most of its products, rather than rely on faraway, lower-cost but slower-reacting suppliers, as most fashion houses do. Zara employs a large number of in-house designers, and their most fashionable and frequently changing products are made in their own factories in Galicia and other nearby regions in Spain, which gives them the flexibility to start, stop, and modify production quickly.
One of the most important concepts in computer sciences is the principle of locality. It means that the vast majority of the references that a computer program makes are to related data in nearby locations in storage. Only a very small percentage of the time will the reference data not be there, and the computer then has to get it from a farther-away level of the storage hierarchy, which takes a lot longer than the local references. Were it not for this principle of locality, computers would run much, much slower.
Perhaps we humans also have our own principle of locality. Even the most global among us still spend most of our time and energy with our families, friends and colleagues right near our homes. We get most of our nurturing and inspiration from our local base. And, . . . it is this base that then enables us to go out and properly deal with the vast global world out there.